An ax to taxes
The GOP has to prove its promises of prosperity
The Republican-driven Tax Cuts and Jobs Act took a long and winding road to approval in Congress on Wednesday. But for all the contention surrounding the bill and its implications, everyone should be able to agree on one point: The passage of a tax-cut plan was inevitable.
With Republican control of the House, Senate and White House, and with a long-standing clamor among Republicans and their supporters for substantial reform of the tax code, there was no way that a tax-cut bill of some kind was going to fail in this Congress. Even Sen. Bob Corker, the Tennessee Republican who had expressed deep concern over the bill’s deficit spending and who has been an unsparing critic of his party’s president, came back to the fold. “I wanted pro-growth tax reform to occur,” he said. “I just felt like this was a once-in-a-generation opportunity.”
The unseemly process of lawmaking brought its share of compromises. Sen. Lisa Murkowski, R-Alaska, was wavering last month, but was brought on board with the promise of a provision to permit drilling in the Arctic National Wildlife Refuge, for example. Some of the gratuitous measures, such as a provision to treat tuition waivers for graduate students as taxable income, were ditched in the back and forth. The end result is a law, to be signedby the president early next year, that is about to enter another high-velocityspin cycle.
To Republican true believers, this round of tax reform, the most ambitioussince 1986, will unleash an American Renaissance of growth and shared prosperity that “will put our country on the right path,” as House Speaker Paul Ryan, a primary architect, said. To Democrats and others, it’s the dawn of the Dark Ages that will bring about “an oligarchic form of society,” in the words of Sen. Bernie Sanders of Vermont. It’s like going to two doctors and getting two diametrically opposed opinions. The majority of taxpayers are likely to tune out the hype from both sides and see what happens in the year ahead. Their views could shift if they realize tax savings in their paychecks from adjusted withholding, get aboost from the higher child tax credit, or pick up a job from a company that hasbeen emboldened to expand.
Therates and provisions for individualtaxpayers, many of which expire after 2025, have received the most attention. But it’s the permanent reduction of the corporate tax rate from 35 percent to 21 percent that makes up the bulk of the tax plan. Feel free to rail againstthe evils of the corporate world, but this downward adjustment is a realistic move to stay competitive in the global marketplace. The effects may not be immediate, beyond some public relations-driven bonuses being doled out by eager corporate citizens. The results will be seen over years as companies shift operations away from offshore tax mechanisms and make longer-term investments in the United States, feeling more secure about the businessclimate.
The taxpayers most likely to feel a pinch are middle-to-upper income residents of California and New York, areas with high personal income taxes and expensive housing. Downward deductibility of state and local taxes will bring some pain to their IRS filings. The knock-on effect could be voter pressure on their states to get in tune with the mainstream of the nation. Another result could be an escalation in creative tax avoidance. The GOP forces behind the Tax Cuts and Jobs Act did not completely succeed in their ambition to make the tax code simply beyond a few bold strokes like nearly doubling the standard deduction. There are no doubt legions of tax experts poring over the law with magnifying glasses, looking for the loopholes left behind by lobbyists.